South African Reserve Bank Governor Tito Mboweni announced on Thursday that the bank's repo rate would remain unchanged at 12 percent.

Economists react to SARB's rate decision:

Colen Garrow, Brait:

"The outlook for inflation is better and for that reason the governor has decided to put things on hold. It's a good decision for now."

Elize Kruger, Kagiso Securities:

"The decision to leave rates unchanged is in line with expectations. It was the correct decision given the information at hand. It is good news and indicates that they are forward-looking. It shows that there is scope for a significant reduction in interest rates going forward, although this is only likely to happen around April next year.

"In the meantime, this economy remains under pressure."

Dennis Dykes, Nedbank:

"The right decision under the circumstances, taking into consideration the improved short-term inflation outlook and the generally weaker currency."

Cees Bruggemans, FNB

"The SARB again decided to keep interest rates unchanged in August, the third time it has now done so since it started its tightening cycle way back in mid-2006.

"This time, though, we may have seen the peak of the interest rate cycle. The next move may be down, provided economic events continue to shape to our advantage.

"The more important policy questions, however, pertain to the instigating first-round price shocks coming from abroad (oil and food mainly), domestic second-round effects (wages and administered prices especially), future risks we still face (including the rand) and how economic growth shapes.

"But what applies on the way up also applies on the way down. As headline CPIX peaks and starts to decline under the moderating influence of reversing commodity price shocks and for technical reasons, so will the wage increases granted.

"Second-round inflation effects should therefore also follow the first- round effects lower in 2009.

"Our domestic economy is still weakening under the influence of past events, and will probably weaken some more in coming quarters, even as the electricity-induced weakness of 1Q2008 moderates somewhat in 2Q2008.

"Any further interest rate declines from this level are for now considered unlikely, given the lingering global risks we may still face to the inflation outlook, in oil and food, but also regarding the rand, given our very high current account deficit.

"The global environment will likely remain tumultuous, making a high interest rate defence advisable as an insurance policy against unexpected shocks."

Annabel Bishop, Investec:

"As was widely expected, the Monetary Policy Committee left interest rates unchanged at its meeting today.

"The SARB said inflation is expected to decline significantly in Q1.09, partly as a result of the reweighting and rebasing effects. However, the SARB also said that it only expects inflation to regain target in Q2.10, averaging 7.2 percent in 2009 and 5.9 percent in 2010 (this represents a small improvement from the SARB's previous inflation outlook);

"Our inflation outlook is different to the SARB's, we expect the target will be regained in H2.09, with CPIX inflation averaging 6.7 percent in 2009 and 5.6 percent in 2010. We continue to expect CPIX inflation to peak in Q3.08, close to 13.0 percent, which is in line with the SARB's view;

"The SARB made particular mention of the fact that the outlook for inflation remains uncertain, complicated by the impending rebasing and reweighting of the CPI basket for in 2009. In particular, the SARB said in trying to account for these changes, certain assumptions have been made, and its central forecast is therefore subject to additional uncertainty. For these reasons we believe the SARB made the right decision today in leaving interest rates unchanged;

"We expect no further interest rate hikes this year. In addition to the uncertainties mentioned above regarding the values of the targeted, newly calculated measure of inflation next year, the mortgage interest rate component of CPI will be done away with, replaced by the income which can be charged for renting out homes instead of living in them. By definition, CPIX inflation would fall away. Whether CPIX inflation would be replaced by CPI inflation as the targeted measure is uncertain, it is even possible that total country CPI could be targeted instead of CPI for primary and other urban areas.

"We expect a 50bp cut in April 2009. The newly calculated inflation values will only be published toward the end of February 2009, after the first MPC meeting of the year and the first opportunity for an interest rate cut is April, if the SARB waits for the publication of the data before cutting, which we expect it will do. However, it may then need to play catch up, given our forecast magnitude of the fall off in inflation, and interest rates cuts of more than 50bp and/or between meetings are not unlikely."

I-Net Bridge